T3010 and Transparency in the Charitable Sectorafptoronto.org/wp-content/uploads/2017/11/T3010-and-Transparenc… · 20/11/2017 · 2 GlobalPhilanthropy.ca Blumberg Segal LLP Blumberg

T3010 and Transparency in the

Charitable Sector

A presentation to AFP GTA Congress

November 20, 2017

Mark Blumberg ([email protected])

Blumberg Segal LLP

mailto:[email protected]

GlobalPhilanthropy.ca 2

Blumberg Segal LLP

Blumberg Segal LLP is a law firm based in Toronto, Ontario

Mark Blumberg is a partner at Blumbergs who focuses on non-profit and charity law

Assists charities from across Canada with Canadian and international operations and foreign charities fundraising in Canada www.canadiancharitylaw.ca and www.globalphilanthropy.ca

Free Canadian Charity Law Newsletter. Sign up at: http://www.canadiancharitylaw.ca/index/php/pages/subscribe

(416) 361 – 1982 or 1-866-961-1982

[email protected]

www.twitter.com/canadiancharity

http://www.canadiancharitylaw.ca/

http://www.globalphilanthropy.ca/

http://www.canadiancharitylaw.ca/index/php/pages/subscribe


http://www.twitter.com/canadiancharity


Introduction

Legal information not legal advice

Views expressed are my own

Questions during and at end

Logistics and timing


Charity Sector Environment

Competition

Insufficient resources (money, volunteers) vs. need

Uncertain resources

Maximize public benefit of charities

Reporting requirements

Desire for greater transparency and accountability

Technology

Standards

Visibility

National and International activities

Transparency

GlobalPhilanthropy.ca

What is transparency? (UK)

“The Charity Commission interprets transparency and accountability as providing relevant and reliable information to stakeholders in a way that is free from bias, comparable, understandable and focused on stakeholders’ legitimate needs.”

https://www.gov.uk/government/publications/transparency-and-accountability-rs8

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Why Charities Should Be Transparent?

“A high level of transparency when accounting for performance allows trustees to:

demonstrate that resources are being used wisely and for the stated purpose;

show that the charity is being organised and managed properly;

demonstrate that the charity is carrying out its activities efficiently and effectively; and

attract new resources to enable the charity to continue its activities. “


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Are Charities transparent? (UK)

“Our evidence is that the general standard of performance against the transparency and accountability framework is not satisfactory. Whilst there are some very good examples, too many charities in our study did not meet basic requirements. We hope that charities will take both this message and what the report shows about good practice to heart and respond constructively.”


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Does your charity describe impact? (UK)

“The impact of a charity’s activities is of great interest to stakeholders as a measure of its effectiveness in applying its resources for public benefit.

16% of the Annual Reports explained in detail how the year’s activities had benefited wider society.

34% gave limited information.

51% gave no details at all.”


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Transparency

helps with running a better charity

helps to prevent misuse of charity resources

enhances stakeholder knowledge and confidence

expectations are greater and T3010 has not kept up

better data on the sector may improve discussion and decision-making

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T3010


What is T3010

Canadian Registered Charities must file their T3010 Registered Charity Information Return every year

Within six months of the end of the charity’s fiscal period

Form is mailed with labels to charity – also can download form from:

http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rtrn/flngb-eng.html

See www.charitydata.ca for T3010 information (Blumberg Segal LLP)

CRA Advanced Search

http://www.cra-arc.gc.ca/ebci/haip/srch/advancedsearch-eng.action

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http://www.charitydata.ca/






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When to File T3010

http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rtrn/t3010flng-eng.html

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Complete T3010 – Part 1

Form T3010, Registered Charity Information Return;

Form TF725, Registered Charity Basic Information Sheet;

a copy of the charity’s own financial statements, including notes to the financial statements;

Form T1235, Directors/Trustees and Like Officials Worksheet, with all the required information;

if applicable—Form RC232 WS, Director/Officer Worksheet and Ontario Corporations Information Act Annual Return, or Form RC232, Ontario Corporations Information Act Annual Return;

if applicable—Form T1236, Qualified donees worksheet / Amounts provided to other organizations;

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Complete T3010 – Part 2

if applicable—Schedule 1, Foundations;

if applicable—Schedule 2, Activities outside Canada;

if applicable—Schedule 3, Compensation;

if applicable—Schedule 4, Confidential data;

if applicable—Schedule 5, Gifts in kind;

if applicable—Schedule 6, Detailed financial information;

if applicable—Schedule 7, Political activities; and

if applicable—Form T2081, Excess Corporate Holdings Worksheet for Private Foundations.

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Why File T3010

Legally required

Only uniform way to compare Canadian charities

Advertisement for charity

Important for transparency of charity

Only beginning of transparency (website, annual report, newsletters, e-mail lists, etc.)

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Consequences for Failing to File

Revocation of charitable status within months

Cannot issue receipts

Lose benefits of registered status

Revocation tax if not re-registered within 1 year

May not be able to reregister

Embarrassing

$500 penalty

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Mistakes with T3010

T3010 must be the correct form, accurate and complete including schedules and financial statements otherwise may be returned or considered incomplete

Lots of help on internet with T3010

Budget 2012 – if T3010 not complete and accurate charity can be suspended from receipting

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Problems with T3010

Using wrong form

Not providing all information

Not providing accurate information

Not providing all schedules

Not providing financial statements

Not providing date of birth of directors

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Why Transparency for the Public

Accurately reflect your organizations work

Bring in more resources (tactical and strategic)

Understand the sector or subsector

Compare your organization to others

Identify risks

Safeguard reputation of your charity

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CRA Caution

“We recognize that completing the information return requires an understanding of some complex provisions. We recommend that, if necessary, registered charities get advice from legal or accounting experts.”

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What is Confidential

Most of the T3010 is publicly available including financial statements

Confidential data is marked

Section F (physical, books and records address and who completed form)(not mailing address)

Schedule 4 (information on funders and foreign donors)

the right-hand side of Form T1235, Directors/Trustees and Like Officials Worksheet; (contact information on directors) and

Part II, Section B, of Form T2081, Excess Corporate Holdings Worksheet for Private Foundations. (material transactions by relevant persons)

CRA can share even confidential information in certain circumstances such as court order, enforcement of ITA, CPP, EI, CSIS, Finance etc.

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Partial Section by Section


Programs

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Ongoing and New Programs

If the charity was not active, tick no. This means that during the entire fiscal period, the charity did not use any of its resources to carry out its charitable activities, or to further the charitable purposes for which it was established. To keep its registered status, the charity must file its information return and explain why it was not active in the “Ongoing programs” space at C2.

C2 – Describe any ongoing and new programs the charity carried on. New programs are those that the charity began in this fiscal period.

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Ongoing and New Programs (Cont)

The term program covers all the charitable activities the charity carries out on its own through employees or volunteers, and through intermediaries, as well as gifts it makes to qualified donees. Grant making registered charities should describe the types of organizations they support.

The charity can use this space to give details about the contributions of its volunteers in carrying out its activities, including the number of volunteers and their hours. Since this section is public information, do not include the names of volunteers.

Do not send documents such as annual reports in place of describing the charity’s activities in question C2. Do not report information on fundraising activities here.

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Ongoing and New Programs (Cont)

If the charity is considering new activities that we have not yet approved, contact us before starting them to make sure that the proposed activities are charitable and fall within the charity’s approved purposes.

Use active verbs such as “do,” “offer,” “operate,” “conduct,” “perform,” “educate,” “feed,” “give,” or “house” to describe how the charity carried out its charitable activities during the fiscal period.

You must give enough detail for a reader to understand what the charity does. Do not repeat the charity’s purposes. For example, saying “we advance religion,” or “we relieve poverty,” is not enough.

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Foreign Donors

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Political Activities

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Fundraising


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Fundraising Costs and Practice

Fundraising is important for charities but it is not a charitable activity

Lots of media and donor concern about costs and practices

CRA Guidance on Fundraising recently released

Must read for anyone very involved with fundraising:

http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/fndrsng-eng.html

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Organization of Guidance

Fundraising by Registered Charities

A. Introduction

B. Summary

C. Application and jurisdiction

D. What is fundraising?

E. Definitions

F. When is fundraising not acceptable?

G. Evaluating a charity's fundraising

H. Factors that may influence the CRA’s evaluation of a charity’s fundraising

Appendix A – Examples of fundraising activities

Appendix B – Allocating fundraising expenditures

Appendix C – Best practices

Appendix D – Questions and answers

Footnotes

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Fundraising Ratio

Ratio of costs to revenue over fiscal period – under 35% This ratio is unlikely to generate questions or concerns by the CRA.

Ratio of costs to revenue over fiscal period – 35% and above

The CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs. The higher the ratio, the more likely it is the CRA will be concerned the charity is engaged in fundraising that is not acceptable, requiring a more detailed assessment of expenditures.

Ratio of costs to revenue over fiscal period – above 70%

This level will raise concerns with the CRA. The charity must be able to provide an explanation and rationale for this level of expenditure to show that it is not engaged in unacceptable fundraising.

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Questions on Ratio

What are your total fundraising expenditures?

What are your total fundraising revenues?

What is the ratio of expenditures to revenue?

Is the ratio high?

What are you doing to reduce ratio?

Is your board and senior staff aware of ratio?

Are you disclosing to public accurately ratio?

What other steps are you taking to be more transparent and provide more disclosure?

Do you report regularly to your board about compliance with the Guidance?

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Exclusions from fundraising

Fundraising does not include:

seeking grants, gifts, contributions, or other funding from other charities or government,

recruiting volunteers to carry out the general operations of the charity,

or related business activities. (See CPS-019, What is a Related Business?)

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Understating Fundraising Revenue

Where a charity knowingly or negligently understates its fundraising expenses on line 5020 of Form T3010 or elsewhere, this is taken into account in assessing whether the charity has acted reasonably. Inaccurate reporting is grounds for compliance action under the Income Tax Act.

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Employees and Compensation

Compensation includes all forms of salaries, wages, commissions, bonuses, fees, and honoraria, plus the value of taxable and non-taxable benefits paid by a charity to its employees. Compensation generally includes all amounts that form part of an employee’s gross income from employment, plus the charity’s contributions to the employee’s pension, medical or insurance plan, employer Canada Pension Plan/Quebec Pension Plan and employment insurance contributions, and workers’ compensation premiums.

Do not include reimbursements for expenses incurred while working for the charity, such as travel claims.

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Non-Cash Gifts – Gifts-in-Kind (GIK)

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Gifts-in-kind

1 – Lines 500 – 565 – If the charity received gifts in kind for which it issued official donation receipts, tick all the types the charity received during the fiscal period.

Does not cover gifts-in-kind that were not tax receipted

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Schedule 6 – Detailed Financial Information



Expenditures

Line 5000 – Enter the part reported on line 4950 that represents all expenditures on charitable activities, except for gifts to qualified donees.

Examples include:

running the charity’s day-to-day programs;

occupancy costs (such as rent, mortgage payments, hydro, repairs, and insurance) for buildings used to carry out charitable activities;

most salaries; and

education and training for staff and volunteers.

Do not include expenditures for management, administration, fundraising, or political activities on this line.

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Expenditures

Line 5010 – Enter the part reported on line 4950 that represents management and administrative expenditures. These may include expenses for:

holding meetings of the board of directors;

accounting, auditing, personnel, and other administrative services;

buying supplies and equipment, and paying occupancy costs for administrative offices; and

applying for grants or other types of government funding, and gifts from other qualified donees (usually foundations).

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Expenditures

Some expenditures can be considered partly charitable and partly management and administration, such as salaries and occupancy costs. In these cases, divide the amounts accordingly between lines 5000 and 5010. Expenditures must be allocated consistently and on a reasonable basis.

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Certification

Media, Watchdog and Database Use of T3010 Information

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Many Databases Utilizing T3010 Information

www.cra-arc.gc.ca/ebci/haip/srch/advancedsearch-eng.action

www.charitydata.ca

https://ajah.ca (subscription)

www.charitycan.ca (subscription)

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https://ajah.ca/

http://www.charitycan.ca/

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CharityCan report on registered charity

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AJAH report on registered charity

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CAVEATS with T3010

Volunteers often completing

Some don’t understand Income Tax Act terminology

Some don’t know every facet of their charity

Usually completed in a hurry

Rarely is their enough input (finance, legal, accounting, program staff)

Most are inputted manually

Some charities are deliberately deceptive

GAAP vs. tax form

Many important questions are not asked (tree vs. forest)

Some questions are ambiguous

Based on fiscal year and can be huge swings between years

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A Closer Look at the T3010 Using Different Lenses


Examples of uses of T3010 information

Individual charity, vs subsector vs sector analysis and benchmarking

Charity sector spends almost $225 billion per year – perhaps your organization offers services or programs that could capture some of those funds.

Only limited by your imagination

Grants vs. loans.

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Specific Examples

Use postal code data to find foundations geographically located near your hospital.

Which charities or foundations worked in which country if you want to support your work in a particular country

You are interested in a particular person – what boards of directors does the person serve on – gives you idea about what they care about and who they are connected to.

Which charities gave to which other charities that are similar to your charity?

Which charities could we work with or collaborate with?

Which charities are new?

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Specific Examples (Cont)

Which charities have grown in revenue?

Which foundations have the biggest asset base?

Which ones are not receiving a good return on their investments/may be interested in an PRI.

Which charities are conducting political activities?

Which charities received funds from abroad?

Which charities received a lot of government revenue and from which level of government?

Benchmarking – how is your charity comparing to others in terms of fundraising, government revenue, expenditures, etc.

Awareness of directors of charities that were revoked

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Find charities across country to implement programs or partner with

Selling organizational memberships, e.g.. APRA, AFP especially in new Territory

Gain a better understanding of the charities within a particular charitable sector, e.g.. Arts organizations

Find out which charities do work in which countries

Find out which organizations have had their charitable status revoked and who has been involved with them

Find out which organizations have failed to file

Investable assets and marketing investment services

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Real estate the property management

New Foundations with large assets and their directors

How much money is CIDA providing for foreign activities and to whom

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Obtaining a Copy of T3010 Database

“you can request electronic versions of the lists by calling 613-946-2412 or toll free 1-877-442-2899, or by sending an e-mail to [email protected].”

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We have created four websites to use technology to inform and provide accessible, understandable information for free to the Canadian public

www.globalphilanthropy.ca

www.canadiancharitylaw.ca

www.smartgiving.ca

www.charitydata.ca

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http://www.smartgiving.ca/



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Other Sources of Information

Industry Canada

Search for a Federal Corporation https://www.ic.gc.ca/app/scr/cc/CorporationsCanada/fdrlCrpSrch.html?locale=en_CA

Under CNCA – pay for documents but can get them.

CRA

Can request copies letters patent, by-laws, charity application

Financial Statements

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https://www.ic.gc.ca/app/scr/cc/CorporationsCanada/fdrlCrpSrch.html?locale=en_CA

https://www.ic.gc.ca/app/scr/cc/CorporationsCanada/fdrlCrpSrch.html?locale=en_CA


Recent Developments

CHAMP – CRA Charities Modernization Program

November 2018 – will be able to file T3010 electronically

Using CRA’s My Business Account (MyBA) secure online portal, charities will be able to:

1)File T3010 (can also use paper based)

2) Charity applications (only electronically from November on)

3) Change certain account information and upload documents

4) Correspond with CRA electronically through portal

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Effect of CHAMP

Registered charities should open a My Business Account (MyBA) if they don’t have one

Charities listing may look different

Eventually but not now more questions or changes to content of T3010

Quicker processing of T3010 information and availability to public

Will reduce CRA error in inputting but not charity human error

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Mockup of Champ interface My BA from CRA

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Mockup of T3010 from CRA

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Ideas to Improve Transparency

Ask stakeholders what information they want.

Update website

Provided audited financial statements on website

Provide simplified financial information as well.

Have directors and non-finance staff review T3010 before filing

Start preparing T3010 3 months before filing date

Try to file T3010 on time (sooner filed, sooner posted)

Improve knowledge of those people filing form

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Check for mistakes in past T3010 filings

Utilize social media to increase access to important information

What languages do stakeholders require

Is mission within legal objects?

Provide links to your information on CRA, www.charitydata.ca etc?

Provide details of value of the contribution of volunteers

Have a policy on transparency, reserve funds etc.

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Discuss impact

Describe affiliated entities, subsidiaries etc. (and be mindful of the disclosure requirements or lack thereof for such entities)

Tell CRA you are using the T3010 information

Ask Finance to changes s. 241 of the Income Tax Act (Canada) to allow release of information on non-profits who file T1044 and charities that are abusing the system.

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Thank you! Blumberg Segal LLP

Barristers & Solicitors

390 Bay Street, Suite 1202

Toronto, Ontario, M5H 2Y2

Tel. (416) 361-1982 ext. 237

Toll Free (866) 961-1982

Fax. (416) 363-8451

Email: [email protected]

Twitter at: http://twitter.com/canadiancharity

www.canadiancharitylaw.ca and www.globalphilanthropy.ca


http://twitter.com/canadiancharity



Documents

T3010 and Transparency in the Charitable Sectorafptoronto.org/wp-content/uploads/2017/11/T3010-and-Transparenc… · 20/11/2017 · 2 GlobalPhilanthropy.ca Blumberg Segal LLP Blumberg